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3 cheap ASX dividend shares I’d buy to beat the RBA’s rate cuts

Dividend shares

If the Reserve Bank of Australia’s (RBA) rate cuts have been hurting your investment income then it could be time to look for some good, cheap ASX income shares.

But not every income share looks good value at the moment. Indeed, Transurban Group (ASX: TCL) looks very expensive for the cashflow it’s sending to investors each year.

I think there are cheap ASX dividend shares out there, like these ones:

NAOS Small Cap Opportunities Company Ltd (ASX: NSC) 

This is a listed investment company (LIC) that looks to invest in small cap businesses with market capitalisations between $100 million to $1 billion. Small caps have the potential to generate large returns because most investors aren’t looking in this area. 

It had a rough FY19, but in the past two months its portfolio has grown by over 20%. So even though the Naos share price has gone up a lot in recent months, it was still trading at a 18.5% discount at the end of September 2019.

Some of the small shares that this Naos LIC owns are BSA Limited (ASX: BSA), MNF Group Ltd (ASX: MNF) and 360 Capital Total Return Fund (ASX: TOT).

It has a trailing grossed-up dividend yield of 7.8%.

Rural Funds Group (ASX: RFF) 

Most real estate investment trusts (REITs) have performed very strongly over the last year due to interest rates falling. This has pushed asset prices higher and yields lower, but farmland REITs like Rural Funds have not seen the same asset price growth.

It’s facing criticism and allegations from overseas firms about its farm values and accounting. But Rural Funds has issued a number of defences, in-particular of its net rental profit which supports the distributions.

Rural Funds aims to increase its distribution by 4% every year by re-investing some of the net rental profit to boost future rent. Its rental contracts include increases linked to either CPI inflation or fixed increases. It has a diversified farm portfolio and could be a good source of long-term income. 

Its forecast FY20 distribution offers a forward yield of 6.1%.

WAM Global Limited (ASX: WGB) 

WAM Global is the LIC in the Wilson Asset Management stable that invests in global shares using the same investment process that has worked well for the other WAM LICs.

It owns plenty of high-quality, well-known businesses like Airbus, Diageo, Danone, American Express, Aon and Logitech.

Over the 12 months to the end of August 2019 it outperformed the MSCI World Index (AUD) by 3.2% before fees, taxes and expenses.

The WAM Global dividend yield will steadily grow to a similar level to some of the other newer WAM LICs and it’s currently valued at a 14% discount to the August 2019 pre-tax NTA.

Foolish takeaway

I think there’s a case to own each of these businesses. Rural Funds could be the best choice for the most defensive and consistent income, but WAM Global could produce the best total returns due to its large investment universe, whilst Naos could pay the biggest dividends over the next couple of years.

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Returns As of 6th October 2020

Motley Fool contributor Tristan Harrison owns shares of NAO SMLCAP FPO, RURALFUNDS STAPLED, and WAMGLOBAL FPO. The Motley Fool Australia owns shares of and has recommended MNF Group Limited, RURALFUNDS STAPLED, and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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